Effects of Infrastructure on Foreign Direct Investment in Kenya
Wekesa, Carol Teresa
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Kenya's FDI inflows as a percentage of GDP have been increasing negligibly over the last five years, increasing from 0.4 percent in 2010 to 0.9 percent in 2013. This is despite the fact that, since the year 2000, there has been increased budgetary allocation to the infrastructure sector. Empirical evidence has shown that quality infrastructure lowers the cost of doing business and improves the investment climate, thus attracting FDI. However, Kenya still has visible signs of infrastructure in-adequacy and inefficiencies. These include congested roads, erratic power supply, long-waiting lists for installation of telephone/power lines, shortages of clean and safe drinking water, and overloaded waste disposal system and pollution. This study, therefore, sought to determine the effects of transport, energy, communication, and water and waste infrastructure development on FDI inflows in Kenya. The study used annual secondary data, spanning 1970 to 2013, sourced from Central Bank of Kenya, World Bank and UNCTAD. Multiple regression analysis was done. It was established that, improved transport infrastructure, communication infrastructure, water and waste infrastructure, exchange rate, economic growth and trade openness are important determinants of FDI inflows into Kenya. Hence, for Kenya to attract more FDI, the government should modernize ports and airstrips, tarmac more kilometres of roads, construct more kilometres of rail line, improve port infrastructure to increase container port traffic, increase broadband internet connectivity, expand technical training institutes, harness innovative ideas for increased export of ICT goods and services, construct and rehabilitate water and waste management systems. It should further strengthen the Public Private Partnerships (PPPs) framework for more private sector participation in infrastructure development; strengthen tax collection mechanisms, sealing loopholes for tax evasion, and ensure more resources are directed towards development vote as opposed to the recurrent vote. Innovative infrastructure financing models should be sought. The use of infrastructure bonds and pension funds are examples. The government should afford investors a conducive investment climate, and at the same time prioritize the implementation of national cohesion and anti-terrorism programs.